Profiting from Harmonic Price Patterns, as you might expect, is all about spotting those “perfect” patterns and purchasing or selling on their completion.
Spotting Harmonic Price Patterns consists on three key steps:
Step 1: Find a possible Harmonic Price Pattern.
Step 2: Determine the possible Harmonic Price Pattern.
Step 3: Buy or sell after the Harmonic Price Pattern is completed.
You may uncover high probability setups that will help you snag those oh-so-lovely pips by following these three fundamental procedures.
Let’s put this process to the test!
Step 1: Locate a potential Harmonic Price Pattern
Oh my goodness, that appears to be a Harmonic Price Pattern!
We’re not precisely sure what kind of pattern that is at this point.
It appears to be a three-drive, although it might also be a Bat or a Crab…
It might possibly be a Moose!
Let’s label those reversal spots anyhow.
Step 2: Measure the potential Harmonic Price Pattern
Let’s make a list of our observations with the Fibonacci tool, a pen, and a piece of paper.
1. The.618 retracement of move AB is represented by move BC.
2. Move CD is 1.272 times the length of move BC.
3. AB’s length is nearly equal to CD’s length.
This pattern qualifies for a bullish ABCD pattern, which is a strong buy signal.
Step 3: Buy or sell on the completion of the Harmonic Price Pattern
Once the pattern has been completed, all that remains is to respond accordingly with a buy or sell order.
In this example, purchase at point D, which is the 1.272 Fibonacci extension of move CB, and place your stop loss a few pips below your entry price.
Is it really that simple?
The issue with harmonic price patterns is that they are so perfect that they are difficult to detect, similar to a diamond in the rough.
You must have hawk-like eyes to recognize possible harmonic pricing patterns and a lot of patience to avoid jumping the gun and joining before the pattern is completed.
Next Lesson: Trading Divergence